Over the last 12 months, HM Revenue & Customs ("HMRC") has ramped up the rhetoric on tax fraud - and also gained further civil powers to tackle it.

While HMRC's Connect system has been cross-referencing data from government databases since 2010 (and from social media since no later than 2013), September 2018 saw a reminder when HMRC's published Criminal Investigation Policy was updated with a new section on the monitoring of 'open source' material (i.e. records publically available online). HMRC say they will:

"[…] observe, monitor, record and retain internet data which is available to anyone. This is known as ‘open source’ material and includes: news reports; internet sites; Companies House and land registry records; blogs and social networking sites where no privacy settings have been applied"

March 2018 saw the coming in to force of Finance Act 2018 which gave HMRC extended powers to make online marketplaces jointly and severally liable for VAT non-compliant activity on their websites.

Since figures became available for the 2011/12 tax year, Fieldfisher has been tracking (and reporting on) HMRC's progress in its ambition to dramatically increase the number of criminal prosecutions.

In previous posts on this blog about HMRC’s criminal investigations activity, we have explained that there are a number of figures that Fieldfisher track that reveal the extent of HMRC’s criminal investigations activity, and the extent of its success (or failure):

search warrants executed by HMRC ("raids");

decisions by the CPS to charge for tax offences (“decisions to prosecute”);

individuals prosecuted ("prosecutions"); and

convictions for tax offences in the courts (“convictions”).

All four are tracked because each arises at a different stage in the criminal investigation cycle. It often takes a year or more between a raid and a decision to prosecute, and often more than that between a decision to prosecute and trial. If a first trial leads to no result, and a retrial is required, the whole process can take four or five years.

We have obtained by way of a request under the Freedom of Information Act the complete figures for the seven tax years from 2011/12 to 2017/18 using these definitions (these figures exclude tax credits offences).

Year

Raids

Decisions to Prosecute

Prosecutions

Convictions

2011/12

657

430

364

333

2012/13

787

664

471

439

2013/14

784

874

713

674

2014/15

759

1247

681

617

2015/16

761

1065

843

773

2016/17

752

1063

844

767

2017/18

641

946

896

815

HMRC set, and revised, ambitious targets for criminal prosecutions in September 2010 and January 2013, respectively pledging to make funding available to increase prosecutions five-fold and seven-fold.

But in 2017/18 the number of raids appear to have fallen - dramatically compared to previous year's modest fluctuations - to 641 from 752 in 2016/17. This is the lowest figure since we started monitoring, although the numbers for 2011/12 and 2017/18 are not substantially different

Decisions to prosecute are also down. The numbers were relatively consistent across 2015/16 and 2016/17; the latest figures reflect the beginning of the declining trend seen in the number of raids.

Prosecutions are, however, up on 2016/17. This is not surprising given that prosecutions typically lag raids which in turn lag decisions to prosecute. We would expect to see the number of prosecutions stall or fall in next year's figures, given the decline in the number of raids and decisions to prosecute. If correct, this will be the first such decline since 2014/15.

We have historically been uneasy with the concept of ‘targets’ for prosecutions. Without a five-fold (or seven-fold) increase in staffing in HMRC’s criminal investigations team (which didn’t transpire) we feared that HMRC would push the CPS to charge in cases less meriting it- despite the damage that can cause to people's lives. But the conviction rates have remained at or above 90% since 2011/12. The figures for 2017/18 continue this trend. While there hasn’t been the tremendous expansion of prosecution activity that the targets suggested there might be, there has been considerable growth; and 'maintaining quality' in this way is a remarkable achievement, with conviction rates significantly higher than for most other forms of crime. HMRC and the CPS should be commended for this.

Assuming HMRC has now changed direction, did they accomplish what they set out to achieve in 2010? If we refer to the target of a five-fold increase in prosecutions sought (later revised to seven-fold) HMRC have failed. But, if the ambition was to send a firm message that tax fraud will investigated, and taken seriously, our view is that they have succeeded. And, HMRC have also succeeded over the past several years in persuading Parliament to give them vastly expanded civil powers, many of which are not subject to effective judicial oversight before they bite. This means that HMRC can often, by civil means, effectively deprive the taxpayer of the proceeds of their actions without a judicial hearing. So, it may mean that criminal prosecutions simply don’t matter as much anymore.

Nevertheless, one still has to take criminal investigations seriously. If you are a regulated (SRA, FCA, ICAEW or the like) professional and are charged with a criminal tax offence, because these are dishonesty offences it is inevitable that you are going to have your licence to practise suspended, and thus will lose your means of earning a living, for at least a year. This is regardless of whether, in due course, the jury acquits you. If the alleged offence relates to a complex conspiracy to defraud, with several co-defendants, it may take two, three or more years for the case to come to trial. If you are acquitted, even if your previous professional firm (or any professional firm) will have you back again, getting back the money that you could have earned in the meantime, and getting back all the money that you have spent on legal fees, will be all but impossible.

So, being charged with a criminal tax offence can still mean virtual financial ruin for a regulated professional.

If HMRC show an interest in you, and you have a concern that something is, or might be perceived to be, open to question or to an adverse interpretation, talk to one of our tax disputes and investigations lawyers, under the protection of legal professional privilege, at the earliest possible opportunity.

Tags:

Subscribe to our Blog

Keep up to date with our latest posts. Simply add your email below, pick your frequency and confirmation will be sent to you.